Why Scalability Is The Biggest Problem Most Service Startups Face

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Startups of the previous decades have gone on to change the world with their technological innovations, eventually transforming into big corporations. But scalability is still a major challenge for service-based startups. Once a plan is in place with the scalability challenges in mind, the roadmap to success becomes clearer.

It’s quite the age of startups these days. They’re just about everywhere since the business environment in recent times has encouraged brilliant minds to get together and give wings to their ideas and concepts.

Angel investors and attractive business loan options add to the encouragement, and there are many Silicon Valley environments cropping up all over the globe. While some experts at TechCrunch believe the golden age of startups is actually over, and consign it to the last decade, the effects of that golden age are still around.
As the TechCrunch article points out, the age of startups is making way for the reign of big corporations. Startups and small businesses are being absorbed by corporate giants such as Apple, Amazon, Alphabet, Facebook, Microsoft, and others. Many of the big corporations we have now were once startups in the previous decades, but now the challenges are rising.

Common Challenges For Startups

All startups have certain common issues to deal with. One of these is the change in roles startup founders and executives need to deal with as the organization grows. In the initial stages of a startup, the staff members must be willing to play different roles in managing and running the company.

But as the startup keeps growing, those roles must be passed on to others as new managers and other staff members join. Well, it’s easier said than done because it requires a new organizational pattern. In practice, this swapping of roles becomes quite a challenge.

The new manager needs to learn the organizational processes, new internal relationships need to be formed, and other possible challenges need to be dealt with. If the existing managers provide greater knowledge and expertise in the relevant areas, the new and existing managers can easily adjust to their new responsibilities.
However, existing managers must be willing to pass on their responsibilities and ensure that the new managers are fully aware of the job at hand. That ensures smooth handing over without any compromise in performance, avoiding confusion and frustration.

The Scalability Challenge Is Unique To Service Startups

Service startups also have some specific challenges to deal with, not least of which is scalability. It’s more of a challenge for service startups than for startups selling products.

Products can just be shipped to customers, but services can’t be. They can only be delivered on a case-by-case basis with personalized services for each of the clients and that hinders growth significantly. It consumes more resources and the business becomes less sustainable as time progresses.

And then you’re left wondering what the whole purpose of the venture is when distributing the service to the customer consumes more resources and gives more headaches than generating the service in the first place. It’s a challenge you’re probably facing now. But let’s go through the major differences between product and service startups first.

Where Service Startups Gain Distinct Advantages

The big advantage of service startups is that you can come up with an idea and get it implemented right away. With a product-based startup, it needs significant resources and cost and time investment upfront from the conceptualization of the product through its creation to the testing stage. For instance, if your startup has a unique product, it’ll take a considerable amount of time for R&D, competitor analysis in the niche market and set up of an online e-commerce store using software to finally start selling. When it comes to a service startup though, you can launch your business and start billing for your services much faster. You just need to define your service and find customers.

When it comes to business risk, service startups have the advantage again. Since services are generated after the customer commits to pay for them, you have a guarantee of earning from the services you generate. On the other hand, you can’t guarantee that you can sell enough products to justify the investment and effort you’ve put in their conception and production.

Though getting pre-orders and carrying out market research can go some way in mitigating the risk for product startups, the fact is that, with products, you design and create them and then sell them hoping that your potential customers will be pleased by the product features. With services, you get the customer’s requirements first, secure the payment, and then work on creating the service. There’s less guesswork involved.

Looking at all these factors, you realize that service startups are cool concepts with distinct advantages. However, the scalability and reusability limitations of services make running a service startup more challenging than running a product startup.

Scalability & Reusability Challenges Are Deeper

By “scalability” we refer to a situation where a business is able to multiply its revenue with the minimal incremental cost. That’s the definition by Martin Zwilling, quoted by startup guru Andreas Aravis. So when you look at startups from that perspective, service-based startups are at a disadvantage.

For a product-based startup, particularly one dealing with digital products, the earning potential is only limited by the number of customers who are willing to pay for the product. You can keep selling the product since you can create as many copies as you want of the digital product or as many numbers of the non-digital product.

In the case of service startups though, you can only sell a limited number of services per day since each service requires specialized customer care. This is what we discussed earlier.

When it comes to reusability – and this is closely connected to the scalability factor we discussed earlier – service startups sell one-off solutions since every solution deals with the requirements of a particular client. And so, the same service concept cannot necessarily be sold to another client.

Whereas for product startups, they only need to come up with the idea of a product once and then create it to be sold to various customers. As long as the demand is there, you can keep selling and earning profits from it. Of course, you need to carry out the required market research to ensure the product you create is something potential customers actually need, but once you’ve got that research aspect spot on, you can continue to profit from the product by selling it.

Don’t Embrace Negativity, But Plan For The Scalability Challenge

That’s why you need to get the planning stage right for service-based startups. You need to anticipate these kinds of challenges. You can be in full control of your service startup if your organizational structure is streamlined and the roles of your managers and executives are well defined.

Also, keep your goals realistic, and build from there. As Alex Turnbull mentions in his blog, your business will get more expensive as it gets larger. Ensure that your costs don’t escalate higher than your revenue. And don’t neglect existing customer experience in your quest to grow your business. Take things slow and steady.



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